Principal Financial Group, Inc. (NASDAQ: PFG ) has a business profile exposed to retirement, asset management, and life insurance, but it doesn’t seem to have any competitive advantage compared to peers in any particular segment, and its current valuation seems toLabutes IR is a Fund Manager/Analyst specialized in the financial sector, with more than 18 years of experience in the financial markets. I have worked at several type of institutions in the industry, always at the buy side and related to portfolio ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 1-16725 (Commission file number) PRINCIPAL FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 42-1520346 (I.R.S. Employer Identification Number) (S ...

● Principal® RETIREMENT | ASSET MANAGEMENT | BENEFITS & PROTECTION First Quarter 2025 Earnings PRINCIPAL FINANCIAL GROUP April 24, 2025 Key takeaways | Delivering on | 10% | 14.0% | 84% | | --- | --- | --- | --- | | long-term | EPS growth1 | ROE² | TTM FCF %3 | | quidance | (9-12% target) | (14-16% target) | (75-85% target) | | | • RIS recurring deposit growth of 9%, with SMB recurring deposit growth at 12% | | | | Highlights | • Principal Asset Management non-affiliated private real estate NCF of +$1.1B; N ...

Financial Data and Key Metrics Changes - First quarter adjusted non-GAAP earnings were $439 million or $1.92 per diluted share, representing a 10% increase in EPS compared to Q1 2024 [9][17] - Total company managed AUM increased to $718 billion at the end of the quarter, reflecting positive market performance and favorable exchange rates [9][10] - Net cash flow was negative $4 billion in the quarter, primarily due to low-fee institutional fixed income withdrawals [10] Business Line Data and Key Metrics Changes - In retirement, positive account value net cash flow was $400 million, with small and mid-sized market flows increasing to $1.3 billion, up from $1 billion in the prior year [11] - Pension risk transfer volume grew to $800 million in the quarter, maintaining a leading position in the industry [11] - Specialty benefits saw strong underwriting results, but overall growth was impacted by lower dental sales and the absence of new PFML markets [12][24] Market Data and Key Metrics Changes - Strong local investment management flows of $700 million were recorded in Mexico and Southeast Asia, indicating the benefits of global business reach [10] - The S&P 500 and small/mid-cap indices finished the quarter down, while international equities and fixed income products delivered positive returns [19] - Foreign exchange rates positively impacted AUM by $8 billion due to improved spot rates [19] Company Strategy and Development Direction - The company is focused on growth across the retirement ecosystem, small and mid-sized businesses, and global asset management, which are seen as significant market growth opportunities [8] - A disciplined approach to aligning expenses with revenue is emphasized, with actions already underway to support this strategy [7][31] - The company aims to maintain a diversified portfolio to navigate market volatility effectively [35] Management's Comments on Operating Environment and Future Outlook - The current market environment is described as dynamic and unpredictable, with significant volatility impacting fee revenue in retirement and asset management [6][7] - Management remains confident in the company's diversified business model and its ability to deliver growth despite market challenges [35][41] - The company anticipates continued focus on expense management and aligning costs with revenue to mitigate macroeconomic impacts [39][44] Other Important Information - The company returned $370 million to shareholders in Q1, including $200 million in share repurchases and a $0.76 common stock dividend, reflecting a 9% growth rate on a trailing twelve-month basis [30] - Principal was recognized as one of the 2025 World's Most Ethical Companies, highlighting its commitment to ethical practices [14] Q&A Session Summary Question: EPS growth outlook amidst uncertainty - Management acknowledged the dynamic environment and reiterated confidence in a diverse portfolio, which is crucial during volatile times [34][35] Question: Flexibility on expense management - Management emphasized a proven track record of aligning expenses with revenue and highlighted ongoing efforts to manage costs effectively [43][44] Question: Client behavior in asset management - Management noted an improvement in the pipeline and increased activity in mandates, indicating a positive trend despite market volatility [50][52] Question: Hardship withdrawals in retirement - Management reported no significant increase in hardship withdrawals, with participant behavior remaining stable [58][60] Question: Mortality in the life business - Management indicated that mortality results can be volatile, but overall mortality remains aligned with expectations, despite a specific large claim impacting results [66][68] Question: Growth of spread-based products in retirement - Management confirmed strong performance in spread-based businesses, with significant growth in registered index-linked annuity sales and pension risk transfer [72] Question: Specialty benefits and dental pricing - Management acknowledged competitive pressures in dental sales but emphasized a disciplined approach to pricing and maintaining consistent renewals [84][86] Question: Dynamics in the small and medium-sized business market - Management expressed confidence in the resilience of the SMB market, noting that it has historically performed well through various economic cycles [114][115]

Core Insights - Principal Financial Group, Inc. (PFG) reported first-quarter 2025 operating net income of $1.81 per share, which missed the Zacks Consensus Estimate by 2.1%, but increased 10% year over year [1] - The company experienced a 5.5% year-over-year increase in operating revenues to $4 billion, driven by higher premiums, fees, and net investment income, surpassing the Zacks Consensus Estimate by 0.9% [1][2] Financial Performance - Total expenses rose 7% year over year to $3.7 billion, attributed to higher benefits, claims, and settlement expenses, but was lower than the estimated $4.1 billion [2] - As of March 31, 2025, assets under management (AUM) reached $717.9 billion, reflecting a 1.3% year-over-year increase [2] Segment Performance - **Retirement and Income Solution**: Revenues increased 7.4% year over year to $2 million, with pre-tax operating earnings rising 8% to $283.7 million, although below the estimate of $315.1 million [3] - **Investment Management**: Revenues grew 4.2% year over year to $453.7 million, but pre-tax operating earnings decreased 5% to $116.3 million, missing the estimate of $155.9 million [4] - **International Pension**: Revenues rose 6.2% year over year to $237.8 million, with pre-tax operating earnings climbing 10% to $71.2 million, exceeding the estimate of $63.1 million [5] - **Specialty Benefits**: Revenues increased 4.2% year over year to $883.9 million, while pre-tax operating earnings rose 4% to $106 million, but both figures missed estimates [6] - **Life Insurance**: Revenues decreased 2.2% year over year to $330.5 million, yet pre-tax operating earnings surged 36% to $13.3 million, although below the estimate of $27.3 million [7] - **Corporate**: Pre-tax operating losses widened to $105.6 million, exceeding the estimate of a loss of $71.5 million [8] Financial Update - As of March 31, 2025, cash and cash equivalents were $3.9 billion, down 7% year over year, while long-term debt increased 10% to $4.3 billion [9] - Book value per share was $53.70, a slight decrease of 0.1% year over year [9] Dividend and Share Repurchase - Principal Financial returned $369 million to shareholders, including $200 million in share repurchases and $169 million in dividends [10] - The board raised the second-quarter dividend by 7% to 76 cents, marking a 9% increase on a trailing 12-month basis [10]

Core Insights - Principal Financial (PFG) reported a revenue of $4.01 billion for the quarter ended March 2025, reflecting a year-over-year increase of 5.5% [1] - The earnings per share (EPS) for the quarter was $1.81, up from $1.65 in the same quarter last year, although it fell short of the consensus estimate of $1.85 by 2.16% [1] Financial Performance Metrics - Assets under management (AUM) for Investment Management reached $555.8 billion, exceeding the average estimate of $550.36 billion [4] - AUM for International Pension was reported at $133.5 billion, surpassing the average estimate of $123.45 billion [4] - Total AUM stood at $717.9 billion, above the average estimate of $687.46 billion [4] - Revenue from Premiums and other considerations was $1.75 billion, slightly below the average estimate of $1.78 billion, marking a year-over-year increase of 4% [4] - Revenue from Fees and other revenues was $1.08 billion, compared to the average estimate of $1.13 billion, with a year-over-year change of 2.4% [4] - Net investment income revenue was $1.17 billion, slightly above the average estimate of $1.16 billion, reflecting an 8.7% year-over-year increase [4] - In the Principal Asset Management Segment, net investment income was $166.70 million, below the estimate of $168.27 million, but up 10.8% year-over-year [4] - Specialty Benefits in the Benefits and Protection Segment reported total revenue of $883.90 million, below the average estimate of $903.31 million, with a year-over-year change of 4.2% [4] - Life Insurance fees and other revenues were $110.70 million, exceeding the average estimate of $105.24 million, representing a year-over-year increase of 5.3% [4] Stock Performance - Over the past month, shares of Principal Financial have returned -13.5%, compared to a -5.1% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Group 1: Earnings Performance - Principal Financial reported quarterly earnings of $1.81 per share, missing the Zacks Consensus Estimate of $1.85 per share, but showing an increase from $1.65 per share a year ago, resulting in an earnings surprise of -2.16% [1] - The company posted revenues of $4.01 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 0.98%, compared to year-ago revenues of $3.8 billion [2] - Over the last four quarters, Principal Financial has not surpassed consensus EPS estimates, but has topped consensus revenue estimates three times [2] Group 2: Stock Performance and Outlook - Principal Financial shares have lost about 4.4% since the beginning of the year, while the S&P 500 has declined by 8.6% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $2.07 on $4 billion in revenues, and $8.22 on $15.94 billion in revenues for the current fiscal year [7] Group 3: Industry Context - The Zacks Industry Rank indicates that the Insurance - Multi line sector is currently in the top 14% of over 250 Zacks industries, suggesting a favorable outlook for stocks in this sector [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - The estimate revisions trend for Principal Financial is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6]

Financial Performance - Net income attributable to Principal Financial Group (PFG) for Q1 2025 was $48 million, a significant decrease from $532.5 million in Q1 2024[7] - Non-GAAP net income attributable to PFG, excluding exited business, was $299 million, down 20% from $376.4 million in Q1 2024[7] - Non-GAAP net income attributable to PFG, excluding exited business, was $299.4 million in 1Q25, down from $376.4 million in 1Q24[31] - Total segment pre-tax operating earnings for 1Q25 were $485.1 million, slightly up from $472.2 million in 1Q24[31] - The Corporate segment experienced a loss of $105.6 million in 1Q25, worsening from a loss of $88.9 million in 1Q24[31] - Total income (loss) from exited business in Q1 2025 was $(251.3) million, compared to a profit of $156.1 million in Q1 2024[38] Earnings and Dividends - Non-GAAP operating earnings for Q1 2025 increased by 10% to $1.81 per diluted share, compared to $1.65 in Q1 2024[6] - The company raised its common stock dividend for Q2 2025 to $0.76 per share, marking a 7% increase from Q2 2024[6] - Non-GAAP operating earnings for 1Q25 increased to $414.5 million, compared to $394.3 million in 1Q24, reflecting a growth of 2.7%[31] Assets and Capital - Assets under management (AUM) reached $718 billion, contributing to total assets under administration (AUA) of $1.7 trillion[6] - The company reported a strong financial position with $1.75 billion of excess and available capital[6] - Total assets as of 1Q25 were $313.0 billion, a slight decrease from $313.7 billion in 4Q24[34] - Stockholders' equity available to common stockholders increased to $11,216.8 million in Q1 2025 from $11,086.4 million in Q4 2024, representing a growth of 1.17%[36] - Book value per common share increased to $49.85 in 1Q25 from $49.01 in 4Q24[34] - Book value per common share, excluding cumulative change in fair value of funds withheld embedded derivative, rose to $53.70 in Q1 2025, slightly up from $53.69 in Q4 2024[36] Revenue and Expenses - Operating revenues less pass-through expenses for Investment Management reached $416.0 million in Q1 2025, up from $398.6 million in Q1 2024, indicating a growth of 4.4%[40] - Commissions and other expenses in Investment Management for Q1 2025 were $37.7 million, slightly higher than $36.9 million in Q1 2024[40] - Pre-tax operating earnings for the Investment Management segment decreased by 5% to $116.3 million in Q1 2025[10] Market and Sales Performance - Retirement and Income Solutions (RIS) recurring deposits increased by 9% to $13.8 billion, with strong Pension Risk Transfer (PRT) sales of $0.8 billion[8] - Life Insurance business market premium and fees increased by 20% in Q1 2025 compared to the previous year[8] Tax and Capital Gains - Total GAAP income taxes for Q1 2025 showed a benefit of $34.0 million, compared to an expense of $95.1 million in Q1 2024[38] - Net realized capital gains (losses) adjusted for Q1 2025 were $(115.1) million, a significant decline from $(17.9) million in Q1 2024[38] - The total net realized capital gains (losses) after-tax adjustments for Q1 2025 were $2.0 million, a recovery from $(17.0) million in Q1 2024[38] Forward-Looking Statements - Forward-looking statements indicate ongoing strategies for growth and potential share repurchases, though actual results may differ[25] Variances and Changes - Significant variances in 1Q25 included lower than expected variable investment income across multiple segments[23] - The cumulative change in fair value of funds withheld embedded derivative decreased to $(2,215.6) million in Q1 2025 from $(2,381.3) million in Q4 2024[36] - Noncontrolling interest reported a loss of $(51.5) million in Q1 2025, compared to a loss of $(44.9) million in Q4 2024[36]

Core Viewpoint - Principal Financial Group, Inc. (PFG) is expected to report first-quarter 2025 earnings on April 24, with a consensus estimate of $1.85 per share, reflecting a 12.1% increase year-over-year, despite a negative earnings surprise in the previous quarter [1][7]. Group 1: Earnings and Revenue Expectations - The first-quarter results are anticipated to show a rise in fee revenues, higher yields, favorable market performance, and increased sales of single premium group annuities [2]. - Operating revenues are projected to increase to $3.97 billion, marking a nearly 4.4% rise from the same quarter last year [3]. - Net investment income is expected to reach $1.1 billion, benefiting from higher yields and average invested assets [6]. Group 2: Expense and Performance Factors - Operating expenses are likely to increase to $1.3 billion due to higher benefits, claims, and settlement expenses [7]. - Investment Management is expected to see improved performance from higher management fee revenues, although this may be offset by lower performance fee revenues and increased variable compensation expenses [4]. Group 3: Market and International Operations - International Pension operations are expected to benefit from increased earnings from equity method investments in Brazil and favorable market performance, although foreign currency headwinds may offset some gains [5]. - Assets under management are likely to improve due to favorable market performance across equity, fixed income, and real estate [6]. Group 4: Earnings Prediction Model - The earnings prediction model indicates a potential earnings beat for Principal Financial, supported by a positive Earnings ESP of +0.31% and a Zacks Rank of 3 [8][9].

Company Overview - Principal Financial (PFG) is expected to report a year-over-year increase in earnings due to higher revenues for the quarter ended March 2025, with earnings projected at $1.86 per share, reflecting a +12.7% change, and revenues expected to be $3.97 billion, up 4.5% from the previous year [1][3]. Earnings Expectations - The upcoming earnings report is scheduled for April 24, and the stock may rise if the reported numbers exceed expectations, while a miss could lead to a decline [2]. - The consensus EPS estimate has been revised 2.44% lower over the last 30 days, indicating a bearish sentiment among analysts regarding the company's earnings prospects [4][10]. Earnings Surprise Prediction - The Zacks Earnings ESP model indicates a negative Earnings ESP of -0.33% for Principal Financial, suggesting that the Most Accurate Estimate is lower than the Zacks Consensus Estimate [11]. - The company currently holds a Zacks Rank of 3 (Hold), making it challenging to predict a beat on the consensus EPS estimate [11]. Historical Performance - In the last reported quarter, Principal Financial was expected to post earnings of $1.95 per share but delivered $1.94, resulting in a surprise of -0.51% [12]. - The company has not beaten consensus EPS estimates in any of the last four quarters, indicating a trend of underperformance [13]. Industry Comparison - Goosehead Insurance (GSHD), another player in the Zacks Insurance - Multi line industry, is expected to post earnings of $0.23 per share for the same quarter, reflecting a year-over-year change of -17.9%, with revenues projected at $78.25 million, up 21.4% [17]. - Goosehead has an Earnings ESP of 4.35% and has beaten consensus EPS estimates in each of the trailing four quarters, contrasting with Principal Financial's performance [18].